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Demand Media, Inc.
Company typePublic
NYSE: DMD
IndustryInternet
FoundedMay 1, 2006; 18 years ago (2006-05-01)
Santa Monica, California, U.S.
Headquarters
1655 26th Street
Santa Monica, California
,
USA
Key people
Sean Moriarty, Chief Executive Officer
RevenueUS$325 million (2011)[1]
Number of employees
400 (2015)
WebsiteDemand Media

Demand Media, Inc. is an American content company[2] that operates online brands including eHow, LIVESTRONG.COM and marketplace brands Saatchi Art and Society6.[3] Demand Media's business model is controversial because its "content farms" have been accused of polluting search engine results with spam.[4] The company also provides social media platforms to existing large company websites and distributes content bundled with social media tools to outlets around the web.[5][6]

Demand Media was created in 2006 by a former private equity investor, Shawn Colo, and the former chairman of MySpace, Richard Rosenblatt.

The company employs an algorithm that identifies topics with high advertising potential, based on search engine query data and bids on advertising auctions. These topics are typically in the advice and how-to field. It then commissions freelancers to produce corresponding text or video content. The content is posted on a variety of sites, including YouTube and the company's own sites such as eHow, Airliners.net, and LIVESTRONG.COM.[7][8]

Content & Media

Demand Media's Content & Media service offering includes leading owned and operated online properties that publish content in text, video, photography, and designed visual formats. This content is published across several key categories on eHow.com, a how-to reference and do-it-yourself destination, Livestrong.com, a health and healthy living destination, and certain niche properties focused on specific interests. It also owns and operates LEAFtv, a lifestyle resource for women that produces high-quality, short-form how-to videos covering stylish living, food and fashion. Additionally, its studioD business develops and executes content marketing strategies and creates custom content for third-party brands, agencies and publishers.[9]

Marketplaces

Through its Marketplaces service offering, Demand Media operates two leading art and design marketplaces where large communities of artists can market and sell their original artwork or their original designs printed on a wide variety of products.[10]

Society6.com, which it acquired in June 2013,[11] provides artists with an online commerce platform to feature and sell their original images or designs on consumer products such as art prints, phone and tablet cases, T-shirts, mugs, blankets, tapestries, wall clocks, duvet covers, shower curtains and throw pillows.

SaatchiArt.com, which it acquired in August 2014,[12] is an online art gallery featuring a wide selection of original paintings, drawings, sculptures and photography that provides a global community of artists a curated environment in which to exhibit and sell their work directly to consumers around the world.[10]

History

Demand Media was co-founded in May 2006[13] by Richard Rosenblatt and Shawn Colo. Rosenblatt has a long history of building and selling Internet media companies. As chief executive officer of Intermix Media and Chairman of MySpace.com, Rosenblatt was one of the innovators of Internet social networking.[14] Colo is a financial acquisition specialist. He worked for 10 years in the private equity industry as a principal with Spectrum Equity Investors, specializing in media and communications companies.[15]

Demand Media raised more than $355 million in financing over its first two years from investors such as Oak Investment Partners, Spectrum Equity Investors, Generation Partners and Goldman Sachs.[16][17]

In June 2007, Demand Media hired Charles Hilliard, a former Morgan Stanley investment banker, NetZero/United Online senior executive and initial public offering (IPO) specialist, as its president and chief financial officer[18] and acquired Byron Reese's how-to website, ExpertVillage.com of Austin, TX, for about $20 million. Reese became the company's chief innovation officer and developed the algorithm that the company uses to identify topics with high advertising potential.[7] By 2008, Demand Media had acquired more than 30 domain-name portfolios and owned 65 destination websites. It said that its 2009 revenue was nearly $200 million and that it was making a profit,[19] but it was later reported that the company had never been profitable.[20]

In July 2008, it was reported that Yahoo! was interested in buying Demand Media for between $1.5 billion and $2 billion.[21] Sources close to both companies said Yahoo! executives were attracted to Demand Media’s generation of advertising impressions and its ability to create niche social networks for media sites. Demand Media CEO Richard Rosenblatt later said that the company was not for sale.[22] The deal never got past the talking stage. It was reported that Rosenblatt wanted a price closer to $3 billion for Demand Media.[23]

In August, 2014, Demand Media acquired online art-gallery marketplace Saatchi Art and named the startup's top executive, Sean Moriarty, as the new CEO of Demand Media Inc.[24]

Acquisitions and Dispositions

Since 2006, Demand Media has acquired a collection of relatively unknown sites and relaunched them with social networking features and video capabilities that serve specific niche interests[25] In the company’s first six months it made nine acquisitions, including the purchase of major registrars eNom and BulkRegister.[26] On November 6, 2008, Shawn Colo, head of Demand Media mergers and acquisitions, said the company would continue to buy niche, well-trafficked sites because the company was profitable and still had "a lot of cash in the bank".[27]

In 2008, Demand Media acquired Pluck, a company providing social networking and commenting solutions to other websites, for a reported $75 million in cash.[28] IndieClick and RSS Graffiti were acquired in August 2011.[29][30] Name.com, a domain name registrar, was acquired on January 7, 2013.[31] Society6 was acquired on June 25, 2013.[32] And Saatchi Online was acquired on August 11, 2014.[33]

In August 2014, Demand Media announced it had successfully separated from Rightside Group, Ltd. and its brands eNom, Name.com and NameJet. As a result of the separation, Demand Media is no longer a provider of domain name services. [34]

In April 2016, Demand Media announced the sale of its brand Cracked.com to E.W. Scripps.[35]

Business model

Demand Media executives say their websites are content-driven to attract visitors by showing up in multiword search-engine queries. The more words that are typed into a search engine, the more specific the search will be. This is called "the long tail"[36] search. Demand Media attempts to get visitors to its websites with these long-tail searches. It then tries to retain visitors with related content and social media tools. Its social media platforms get 3 billion interactions per month for clients with already well established brands.[37] Demand Media commissions specific website content that it then distributes to its own websites and others where it has advertising revenue sharing agreements.[38] As of 2008, Demand Media owned 135,000 videos and 340,000 articles. It is the largest contributor to YouTube, uploading between 10,000 and 20,000 new videos per month, and gets about 1.5 million page views per day on YouTube.[39]

Content is generated via a process in which Demand Media uses algorithms to generate titles, then posts the titles to a screened pool of freelance writers or video creators. The list of available titles used to be over 100,000 but was severely curtailed in the second half of 2011. Typically, writers can claim up to ten titles and then have a week to submit the articles. Format and length are dictated by guidelines. Submitted articles go to an editor (also a freelancer) who can either clean it up or request a rewrite. After writers submit a revised article it is either accepted or rejected. Payment via PayPal is twice a week.

Demand Media’s acquisition of Pluck.com in 2008 gave it the means to provide specialized content and social media platforms to any website.[21] The content comes with advertising attached. The website owners get free content for their sites and split the advertising revenue with Demand Media.

Stock offer

In April 2010, Financial Times reported that Demand Media was planning an initial public offering of shares (IPO), which would mean any acquisitions would be out of the question. IPO filing was completed in August of that year. Shares were at first expected to be offered in December 2010, in a tender that would give Demand Media a value of some $1.5 billion.[40] However, as a result of a Securities and Exchange Commission investigation regarding the company's novel accounting for "long-lived content", the pricing was delayed. On January 12, 2011, the company announced it would price its shares between $14 and $16 each, giving it a valuation of approximately $1.3 billion.[41] Questions were raised about Demand Media's claim to be profitable, given that its IPO filings show that had reported losses for the past several years. Some writers said that the company's accounting practices had been the subject of recent government examination.[42][43][44][45][46]

Criticism

Demand Media has attracted criticism from Internet watchdogs for being one of the largest buyers of articles and videos, often commissioning low quality articles to cut costs in an effort to mass-produce articles and videos to appear highly on Google search results,[36] purchasing thousands of search engine-driven content from low-paid freelancers to use on its websites to attract advertisers, such as Google AdSense's Simpli.[47][48]

Demand Media has also been criticized for its methods of accounting, such as capitalizing the costs of content and amortizing them over five years, giving them the appearance of profitability.[49]

References

  1. ^ Demand Media SEC 10-K filing dated February 25, 2012.
  2. ^ "Demand Media Corporate Profile" Retrieved February 28, 2012.
  3. ^ "Demand Media". Demand Media. Retrieved April 27, 2016.
  4. ^ "Demand Media: Search Spam or the Future of Content?". gigaom.
  5. ^ Michael LoPresti, EContent Digital Content Strategies and Resources, December 1, 2008.
  6. ^ "Company Overview of Demand Media, Inc". Bloomberg Businessweek. Retrieved December 15, 2014.
  7. ^ a b Roth, Daniel (October 19, 2009). "The Answer Factory: Demand Media and the Fast, Disposable, and Profitable as Hell Media Model". Wired.
  8. ^ David Carr (February 7, 2010). "Plentiful Content, So Cheap". The New York Times.
  9. ^ Demand Media (December 31, 2014). "10-K Report". www.sec.gov. United States Securities and Exchange Commission.
  10. ^ a b Demand Media (December 31, 2014). "10-K Report". www.sec.gov. United States Securities and Exchange Commission. Retrieved December 16, 2015.
  11. ^ "Demand Media acquires e-commerce marketplace for $94 million". Reuters. June 24, 2013. Retrieved December 16, 2015.
  12. ^ "Demand Media buys Saatchi Art, names Sean Moriarty as CEO". latimes.com. Retrieved December 16, 2015.
  13. ^ Matt Marshall, Silicon Beat, The Mercury News, Demand Media raises $120 million for a bunch of shell websites, May 2, 2006.
  14. ^ John Heilemann, CNNMoney.com, Giving the Audience Its Own Domain, profile of Richard Rosenblatt
  15. ^ Shawn Colo, Co-Founder and Head of M&A, Demand Media profile
  16. ^ Adam Ostrow, Mashable, All That’s New on the Web, Demand Media Raises $100 Million, September 25, 2007.
  17. ^ PaidContent.org
  18. ^ http://web.archive.org/web/20120815192200/http://www.allbusiness.com/services/business-services/4352976-1.html. Archived from the original on August 15, 2012. Retrieved December 28, 2009. {{cite web}}: Missing or empty |title= (help); Unknown parameter |deadurl= ignored (|url-status= suggested) (help)
  19. ^ Joseph Menn, Los Angeles Times, Champion of the Obscure, Under Richard Rosenblatt, the company has amassed thousands of specialty sites and expects a healthy profit this year, July 16, 2008.
  20. ^ David Goldman (August 12, 2010). "The nonexistent profits Demand Media lied about". CNN.
  21. ^ a b Michael Arrington, Tech Crunch, Yahoo Takes A Gander At Demand Media To Plug Some Holes, July 9, 2008.
  22. ^ Kara Swisher, Boomtown, All Things Digital, Demand Media’s Richard Rosenblatt Speaks, July 9, 2008.
  23. ^ CNET News, July 9, 2008.
  24. ^ "Demand Media buys Saatchi Art, names Sean Moriarty as CEO". latimes.com. Retrieved December 11, 2015.
  25. ^ Kenneth Li, Reuters, Demand Media buys Pluck Corp, March 4, 2008.
  26. ^ Ron Jackson, DN Journal, His Companies Have Sold for Over $1.3 Billion: Can Demand Media’s Richard Rosenblatt Do It Again with Domains?, April 2007.
  27. ^ Bambi Francisco, Vator News, Demand Media, profitable and still buying, November 6, 2008.
  28. ^ Erick Schonfeld, TechCrunch, Demand Media Buys Pluck for $75 Million, March 4, 2008.
  29. ^ "Demand Media Buys IndieClick, Re-Signs With Google". Adweek. August 10, 2011. Retrieved June 25, 2013.
  30. ^ "Demand Media Acquires RSS Graffiti". Reuters. August 9, 2011. Retrieved June 25, 2013.
  31. ^ Naidu, Taryn. "Name.com joins the Demand Media family". Demand Media. January 7, 2012. Retrieved on January 9, 2012.
  32. ^ "Demand Media Acquires Online Retailer". Adweek. June 25, 2013. Retrieved June 25, 2013.
  33. ^ Dave, Paresh (August 11, 2014). "Demand Media buys Saatchi Art, names Sean Moriarty as CEO". LA Times. Retrieved August 25, 2014.
  34. ^ "Demand Media - Demand Media Completes Tax-Free Spin-off of Rightside Group". ir.demandmedia.com. Retrieved April 4, 2016.
  35. ^ "Demand Media Sells Cracked Business to The E.W. Scripps Company for $39 Million | Business Wire". www.businesswire.com. Retrieved April 27, 2016.
  36. ^ a b Los Angeles Times. July 16, 2008.
  37. ^ Bambi Francisco, Vator News, Demand Media profitable and still buying, November 6, 2008.
  38. ^ Pete Cashmore, Mashable, All That’s New On the Web, Demand Media Launches Deals.com, December 1, 2006.
  39. ^ Bambi Francisco, Vator News, Demand Media is largest provider to YouTube, Interview with Steven Kydd, EVP of Demand Studios, October 30, 2008.
  40. ^ Li, Kenneth (April 16, 2010). "Demand Media enlists Goldman for IPO". FT.com. Retrieved March 20, 2014.
  41. ^ "Demand Media Clears SEC and Prices IPO - Kara Swisher - News - AllThingsD". Kara.allthingsd.com. January 12, 2011. Retrieved March 20, 2014.
  42. ^ Austin, Scott (August 12, 2010). "Where Did Demand Media's Profits Go?". The Wall Street Journal.
  43. ^ Goldman, David (August 12, 2010). "The nonexistent profits Demand Media lied about". CNN.
  44. ^ Hobart, Byrne (August 12, 2010). "Demand Media's IPO: Everything You Need to Know". Byrne's Blog.
  45. ^ Blodget, Henry (December 23, 2010). "Come On, Demand Media, Just Drop The Bogus Accounting". businessinsider.
  46. ^ Yarow, Jay (December 23, 2010). "Demand Media IPO Delayed, Tripped Up By Questionable Accounting Practices". businessinsider.
  47. ^ Li, Kenneth (June 16, 2010). "Google eyes Demand Media's way with words". FT.com. Retrieved March 20, 2014.
  48. ^ Nicholas Spangler (November/December 2010). In Demand: A week inside the future of journalism Columbia Journalism Review.
  49. ^ Blodgett, Henry (October 20, 2011). "Demand Media's stock has completely collapsed, closing yesterday at ~$5.60 a share". Business Insider.
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